Bang on St Stephen’s Green in the heart of Dublin, an ugly concrete building houses Ireland’s most notorious financial institution – Anglo Irish Bank, which spearheaded the country’s doomed lending binge. And it will be the first Irish bank to evaporate – its nameplate will be unscrewed as early as January as the government tries to clean up the mess left by toxic finance.
Hot on the heels of an €85bn (£72bn) international bailout, the Irish government is preparing a swingeing austerity budget, due to be presented to the Dáil on Tuesday under the watchful eyes of the IMF and the country’s European partners. The Irish people are frustrated and disenchanted – they want to punish a “toxic triumvirate” of builders, bankers and politicians.
Spending a few days in Dublin last week, I had a chance to sample a little of the vibe close up. The leader of Ireland’s trade union congress, David Begg, summed it up: “There’s a very angry mood in the country. Until recently, if you’d stopped somebody on the street and asked them what they really thought, they’d have said ‘If we keep our heads down for a couple of years, we can get back to where we were before’. That was fed by government fiction about green shoots of recovery. The dawning realisation is that the picture is far worse.”
So far, provisions have been made for €45bn of losses at Ireland’s leading banks – Anglo Irish, AIB, Bank of Ireland and Irish Nationwide, which amounts to €10,000 for every Irish man, woman and child. Using funds from the country’s national pension reserve, a further €10bn will be added to the bill following last month’s international rescue package. That’s not gone down well.
“It’s not a bailout package, it’s a transfer of wealth from the ordinary worker to the banks,” Colm Stephens, a university administration worker, told me. “We’re being asked to rescue the richest people in the world – the people who gambled and lost, who bet on every horse in the race.”
If George Osborne took a pillorying for wielding the axe on British spending in October, Ireland’s Brian Lenihan can expect deeper unpopularity. Expected cuts of €15bn over four years in Ireland amount to twice as much, per head of population, as Osborne’s £81bn slashbacks in Westminster.
Public sector workers in Ireland have taken pay cuts of around 15%, although they remain well paid by international standards. The public sector workforce will be drop by 25,000 by 2014 compared with 2008, hitting the police, judiciary, local government and Ireland’s health service. Benefits are falling and lower- paid workers are to be brought back into the income tax system. Even Ireland’s football manager is to share in the pain; Giovanni Trapattoni has accepted a 5% pay cut, though as this is from a salary of £1.8m, he should still be able to rub along tolerably.
One poll suggested that the senior partner in Ireland’s governing coalition, Fianna Fáil, has fallen into fourth place behind the two main opposition parties, Fine Gael and Labour, and Sinn Féin, raising the prospect of an electoral meltdown for Brian Cowen’s administration.
There’s almost universal agreement that the true villains in Ireland’s fiscal crisis are the banks who, for all their supposed financial acumen, became addicted to lending into a property bubble that was neither rational nor sustainable. But the people running Ireland’s national finances also have much to answer for. It wasn’t a good idea, during the boom years, to raise income tax threshholds to the point where 45% of the workforce pays nothing. That left the state reliant on “transaction taxes” dependent on property deals that were never going to last for ever.
It would be foolish to exaggerate Ireland’s problems. The shops are still busy, the bars are still buzzing. And home repossessions have been fairly modest, partly because of the political risk of soon to be state-controlled banks such as AIB and Bank of Ireland turfing people out on to the streets.
But behind the scenes, things are tricky – some 23% of Dublin’s offices are vacant, says property firm CB Richard Ellis. And hopes of an export-led recovery will be damaged if contagion spreads across Europe as Portugal, Spain and Italy struggle to shore up confidence in the financial markets.
Ireland’s trade union supremo reckons that the country could face a “lost decade” of stagnation akin to Japan’s experience in the 1990s. Begg has an interest in being apocalyptical as he argues against cuts that harm his members. But it’s going to be a long, hard haul back to prosperity for whoever succeeds Cowen as Ireland’s taoiseach.